Q: Are non-traded investments, including unlisted REITs, a good idea given the drawback of lack of liquidity?

A: Illiquid investments may work out fine, until you need your money.

An illiquid investment is one that's difficult to sell and convert to cash. That might sound fine, especially if you consider yourself to be a long-term investor. But a lack of liquidity is a huge knock against an investment and a reason in many cases to stay away.

Investors learn the hazards of illiquidity from time to time. Just a few years back, investors bought so-called auction-rate securities, lured in by the better-than-market interest rates.

These investments, designed to allow investors to lend money to solid institutions and get decent returns, wound up largely a bust. Investors got locked into the securities unable to sell, leaving them only legal recourse as a way to get their money back.

It's difficult to make blanket statements about every illiquid investment. For instance, you might lend money to a child to go to medical school, which is an illiquid investment, but likely a good one.

And while some real estate investment trusts may not trade, they might hold a solid portfolio of income-producing properties you're familiar with.

But, generally speaking, investors demand a much higher return in order to tolerate the perils of illiquidity. And with so many liquid and easy to buy and sell publicly traded investments, including REITs, available, it's hard to justify the extra risk of having your money locked up.